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Judge Backs SBC, Rejects Parts of '96 Telecom Act

In the latest assault on the oft-maligned Telecommunications Act of 1996, a federal judge in Texas on Wednesday struck down as unconstitutional some key provisions of the landmark law designed to bring competition to the local phone industry.

The ruling is not expected to have any immediate impact on the process of opening local phone markets to competition, however. That process has already been stalled by previous challenges that are destined to be decided by the U.S. Supreme Court. But it may allow local phone companies to start offering other services, including long-distance calling, to their own customers.

SBC Communications, the San Antonio-based parent of Pacific Bell and Southwestern Bell, complained in July that the law improperly discriminated against it and the four other regional Bell operating companies--the so-called Baby Bells--because it singled them out by name and prevented them, until certain conditions were met, from selling long-distance and other services that smaller local phone companies may sell. The New Year's Eve ruling by Judge Joe Kendall of Dallas sided with SBC.

The company said it would move to offer long-distance services in parts of its local areas as soon as the necessary rate tariffs could be filed.

In his ruling, Kendall faulted Congress for unilaterally finding the local phone companies guilty of antitrust violations. He said antitrust laws already in place are adequate to handle any such violations as they arise.

"The evils that Congress is predicting and attempting to prevent are addressed by the antitrust laws of this country, if and when their use become necessary," he said.

The Federal Communications Commission, the agency charged with carrying out the telecom law, is likely to appeal the ruling. Officials at the agency in Washington could not be reached for comment.

The Telecommunications Act was designed to spur competition in the $100-billion market for local phone service, which historically has been controlled by AT&T and, since the phone monopoly's breakup in 1984, its offspring, the Baby Bells.

The law requires the five Baby Bells--SBC, Ameritech, Bell Atlantic, BellSouth and US West--to open their local networks to would-be competitors. Once there is competition in the local markets, the law says, the Baby Bells may vie for a share of the $80-billion long-distance market.

Ameritech, SBC and BellSouth have all asked for permission to sell long-distance service in their own territories, but the FCC has so far denied their requests on grounds that local competition doesn't exist in those areas.

The SBC lawsuit is only one of several court challenges that have, in effect, put major portions of the law on hold.

Last year, the Bells and GTE Corp., a large local service provider that was not part of the Ma Bell system, contested the FCC's authority to set rules governing the prices local carriers could charge would-be competitors for access to their lines. The U.S. 8th Circuit Court of Appeals in St. Louis ruled in favor of the Bells in July. That decision--which halted the move toward greater competition in most local phone markets--is being appealed by the FCC to the Supreme Court.

FCC officials have privately complained that regional federal judges lack sufficient understanding of the complicated 300-page law. Some observers say the judges also may be unduly influenced by the regional phone companies. SBC is a powerful political force in Texas, where Kendall ruled Wednesday.